Analysts trim Sun Pharma earnings on surprise Q2 loss

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Analysts cut earnings estimates for India's top drug maker Sun Pharmaceutical Industries after it posted a surprise loss for the quarter ended September, leading to a 4-12 per cent cut in target prices on the stock. Sun Pharma on Tuesday posted a consolidated loss of Rs 218.82 crore in Q2 on a one-time loss of Rs 1,214.38 crore with respect to Modafinil antitrust litigation. The stock slumped 7.4 per cent on Wednesday to end at Rs 520.35—a five-month-low, and was one of the most actively traded stock futures.

"Though the quality of Sun’s business is among the best, near-term challenges and investments in the specialty business eclipse medium-term outlook," said Edelweiss, downgrading the stock to 'hold'. Edelweiss trimmed FY19 and FY20 earnings per share estimates by 5 per cent each. Kotak Institutional Equities has cut FY19-FY21 EPS estimates by 6-8 per cent. Prabhudas Lilladher believes valuation is challenging and one of the highest among peers at 32 times FY19 estimates.

Morgan Stanley, unlike others, has increased target price on Sun Pharma to Rs 470 from Rs 448 as it has rolled forward estimates but it has retained its underweight stance. "...the market is underestimating upfront costs of building US specialty and overestimating the pace of pickup in US generic business. Rich valuation also keeps us underweight," said Morgan Stanley. CLSA has cut earnings estimates for FY19-FY21 by 10-12 per cent but retained buy rating as it is bullish on US specialty portfolio.